I hate to be the bearer of bad news, but the
subprime flood—which has been declared contained
over and over again—isn't contained yet. Newsweek's
Daniel McGinn ably explains why the rate freeze is
far from a panacea for all subprime borrowers. And
a flood of new data indicate that the subprime woes
may be a symptom—rather than a cause—of a broader
economic malady. That awful smell in Midtown isn't
from the horse-drawn carriages carrying tourists
around. It's the distinctive odor of debt going
bad.

I see it going down like this:

1 ) Massive mortgage defaults and attempt by the
government to stanch the bleeding by printing more
money
2 ) More devaluation of the dollar and the cascade
from mortgage defaults to credit card defaults
3 ) Recession - 40% drop in home prices and another
25% drop in value of dollar
4 ) OPEC countries and china drop pegs to dollar,
dollar drops another 30-40%
4 ) I move in with euros and buy a house on the beach
in southern california for 100k euros

Okay, maybe it'll be a bit more than 100k euros, but
not too much more .

If the US is lucky this may be the peak of
foreclosures due to the subprime mess, but it will be
years before the fallout from it is over.

Excerpt:

Foreclosure filings across the U.S. nearly
doubled last month compared with September 2006, as
financially strapped homeowners already behind on
mortgage payments defaulted on their loans or came
closer to losing their homes to foreclosure, a real
estate information company said Thursday. A total
of 223,538 foreclosure filings were reported in
September, up from 112,210 in the same month a year
ago, according to Irvine-based RealtyTrac Inc.

Shares in one of Britain's largest lenders
tumbled another 30 percent Monday as customers,
driven by fears of insolvency, made run on the bank
and withdrew billions.

Northern Rock's problems came against the
background of signs of cooling in Britain's booming
housing market.In an interview published Monday in
The Daily Telegraph, former U.S. Federal Reserve
Board chairman Alan Greenspan warned that Britain
was susceptible to some of the problems now roiling
the U.S. real estate market. "Britain is more
exposed than we are in the sense that you have a
good deal more adjustable-rate mortgages," he
said.

The days of the dollar as the world's “reserve
currency” may be drawing to a close. In August,
foreign central banks and governments dumped a
whopping 3.8% of their holdings of US debt. Rising
unemployment and the ongoing housing slump have
triggered fears of a recession sending wary foreign
investors running for the exits. China, Japan and
Taiwan have been leading the sell off which has
caused the steepest decline since 1992.